NIGERIA Law and Practice Contributed by: Theophilus Emuwa, Jibrin Dasun, Perpetua Onyeukwu and Tubosiya Ibama, ǼLEX
3.5 Taxation of Individuals on Shares in Public Corporations There are no special rules on the taxation of dividends from, or gains on, the sale of shares in publicly traded corporations. 4. Taxation of Inbound Investments 4.1 Application of Withholding Taxes Withholding tax (WHT) of 10% applies to interest, divi - dends and rents. For royalty payments, the WHT rate is 10% for corporate recipients and 5% for non-cor - porate recipients. This WHT is treated as the final tax when the payment is due to a non-Nigerian company. Relief in the form of WHT exemptions is available on outbound payments where: • the payment of dividends is satisfied by an issue of shares of the company paying the dividends; or • dividends are paid by an enterprise operating within a free zone. 4.2 Key Treaty Jurisdictions for Inbound Investment Nigeria has double tax treaties (DTTs) with Belgium, Canada, China, the Czech Republic, France, Italy, the Netherlands, Pakistan, the Philippines, Romania, Sin - gapore, Slovakia, South Africa, Spain, Sweden and the United Kingdom. Many investors use vehicles set up in the Netherlands and South Africa. Mauritius is increasingly becoming an attractive jurisdiction even though the DTT between Nigeria and Mauritius is yet to come into force. There is also a double tax agreement (DTA) between the Economic Community of West African States (ECOWAS) countries, which Nigeria has ratified. 4.3 Tax Authority Scrutiny of “Treaty Shopping” Practices The NRS is empowered to challenge the use of treaty country entities by non-treaty country residents if it is of the view that the use of the treaty country entity was designed to take advantage of the treaty or abuse its provisions.
Payroll Taxes An employer is required to:
• contribute 10% of employees’ monthly basic salary to be paid into a retirement savings account with an approved Pension Fund Administrator pursuant to the Pension Reform Act, while employees are required to make a corresponding contribution of 8%; • make a minimum monthly contribution of 1% of its monthly payroll under the Employees’ Compensa - tion Act; • deduct 2.5% of employees’ monthly basic sal - ary for remittance to the Federal Mortgage Bank of Nigeria as National Housing Fund contribution within one month after the deduction; and • contribute 1% of its annual payroll cost to the Industrial Training Fund in compliance with the Industrial Training Fund Act. 3. Corporations and Non-Corporate Businesses 3.1 Form of Closely Held Local Businesses Closely held local businesses commonly adopt the structure of a private company limited by shares. 3.2 Individual and Corporate Rates See 1.4 Applicable Corporate and Individual Tax Rates . 3.3 Restrictions on Retention of Earnings by Closely Held Corporations Where it appears to the NRS that a Nigerian com - pany controlled by not more than five persons has not distributed profits to its shareholders with a view to reducing the aggregate of the tax chargeable in Nige - ria, the NRS may direct the undistributed profits to be treated as distributed and taxable in the hands of the shareholders in proportion to their shares. 3.4 Taxation of Individuals on Shares in Closely Held Corporations There are no special rules on the taxation of gains on the sale of shares in closely held corporations.
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